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NRIs do enjoy special benefits while computing their India Income Tax. It is helpful to know these beneficial provisions so as to reduce tax incidence by proper tax planning.
The recent spurt in economic growth in India has seen a number of Non Resident Indians (NRI) returning to India. NRIs do enjoy special benefits while computing their India Income Tax. It is helpful to know these beneficial provisions so as to reduce tax incidence by proper tax planning.
To be eligible for the ‘NRI’ status, a person should be a non-resident under the Income Tax Act and should either be a citizen of India or a person of Indian origin. A person is of Indian origin if he or his parents or grand parents were born in Undivided India.
NRIs are taxable on income accrued or received in India. Income earned and received outside India such as overseas business income, overseas bank interest incomes, etc. is not taxable in India.
NRIs can explore beneficial provisions available under various ‘Double Taxation A ance Agreements’ (Tax Treaty) that India has entered into with various countries. These tax treaties often provide lower tax rates and exemptions in addition to those available under the domestic tax provisions.
Shares of any Indian company, debentures of any Indian public company, deposits with any public company or any security of the Central government, which are purchased with foreign currency, are given special tax treatment. The interest income from these investments is taxable at a flat rate of 20% and long-term capital gains on sale of these investments are taxable at a flat rate of 10%. The sale of these investments is exempt from tax if the sale proceeds are reinvested in similar investments within six months. If the sale proceeds of these assets are partially re-invested, then the exemption is proportionate to the amount re-invested.
There is a special method of elimination of foreign exchange fluctuation in computing capital gains on the shares/debenture of an Indian company, acquired in foreign currency by non-residents. The purchase price and sale price are converted back into foreign currency as per the rate of exchange prevailing on the date of purchase/sale. Capital gains are determined in foreign currency and converted into Indian Rupees at the rate of exchange on the date of sale. However, in such cases, the benefit of indexation on account of inflation is not available.
However, interest in Non Resident Ordinary (NRO) bank account is taxable. A NRI returning to India and having NRE/NRO bank accounts is required to report his return to his bankers, who shall then convert these accounts to resident bank accounts. The interest income earned on resident bank accounts is taxable.
A NRI is not subject to wealth tax in respect of assets held outside India. A NRI returning to India and/or losing his NRI status will not be subject to wealth tax on assets held outside India if either of the following two conditions are satisfied:
Tax Returns are not accepted without PAN. Therefore, if a tax return is to be submitted, NRIs must obtain a PAN.
While computing his income tax liability, if any position on the tax law is not clear, NRIs can approach the Authority for Advance Rulings (AAR) to decide on that tax matter. The rulings of the AAR are binding both on the tax authorities and the applicant NRI.
Read more on NRIs and taxes:
Tags: Non Resident Indians (NRI) , Income Tax purposes, NRI , business income, overseas bank interest incomes, , Tax Treaty Benefits, Double Taxation Avoidance Agreements, Foreign Exchange Fluctuation , Non Resident External (NRE) , Advance Rulings, Permanent Account Number (PAN) , Gaurav Taneja , Sonu Soni Iyer
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